I just got off the phone with a client who is being confused by his broker. The broker asked me for a plan termination cost quote on this client's plan last week. When i spoke to the client today, he said the broker told him to terminate the current plan and open a new one (somewhere else, I guess). The plan is a plain 401(k) that has deferrals & rollovers. It covers the owner and his spouse, and doesn't have enough assets to have to file a 5500-EZ.

Isn't there a time period that you have to wait before you can create a new plan after terminating the old one? I thought it was 2 years, but I am having problems finding that in the ERISA Outline book....

The "successor plan rule." See 1.401(k)-1(d)(4).

P.S. and 401(k)(10)(A).

Is the main purpose of this termination to facilitate moving funds from one investment provider to another?

Perhaps "transfer" could be added to the vocabulary of both broker and plan sponsor?

There should be a Brokerese/English dictionary for this sort of stuff.

Since this 401(k) covers only the owner and his spouse, were there in fact elective deferrals made or were there employer contributions (nonelective deferrals) made for them? In the later situation I believe the successor plan rule would not apply. Then a new plan could be opened without waiting a year and the 401(k) assets transferred to it.

You can terminate a 401(k) and establish another within the one-year moratorium as long as you do not allow distributions but, rather, transfer all assets from the old plan to the new plan. (No self-respecting broker would ever use a brokerese/English dictionary, because brokers understand the phrase "first, get the money".)

doom -- You couldn't find the rule in the ERISA Outline Book because you weren't looking for rules re: 401(k) plan distributable events.